Sears Noose Tightens As CIT Leaves Company Cold With No Vendor Financing
Two weeks ago, when we first announced the catastrophic earnings preannouncement by Sears we noted that we were stunned "that as part of its preannouncement, Sears has decided it would be prudent to provide an update on its credit facility status as well as availability. As a reminder to anyone and everyone - there is no more sure way of committing corporate suicide than openly inviting the bear raid which always appears whenever the words "revolving credit facility" and "availability" appear in the same press release. Just recall MF Global. And here, as there, we expect shorting to death to commence in 5...4...3..." Subsequently, when the company was downgraded to triple hooks S&P we said that "Accounts Receivable about to become one big perpetition charge off", the implication naturally being that the company is about to lose its vendor financing - which for retailers is the last step before outright default. Sure enough, the WSJ reports that this is precisely what happened. "Struggling Sears Holdings Corp. suffered another setback when a large lender said it would no longer finance loans to suppliers awaiting payment from the company. Sears representatives played down the decision by CIT Group Inc., the largest U.S. provider of what are known as factoring services for vendors, saying the payables the firm had financed amounted to only about 5% of the retailer's inventory." Basically this means that the company Net Working Capital is about to go poof, as there will be nobody to finance the Receivable-Payable spread, SHLD will have to demand COD or even cash upfront, vendors will balk and switch to other, and slowly Sears will suffer an inventory liquidation stranglehold which will culminate with the company's bankruptcy unless Lampert provides a massive liquidity injection, which also however will have a brief impact, as the company is now perceived by all as Dead Man Walking. In other news, we are hearing that several bankruptcy advisors are already preparing the K-Mart pre-pack/freefall pitchbooks... all over again.
"We disagree with their action, in fact we'd point out that other factors are approving shipments to Sears Holdings," company spokesman Chris Brathwaite said in a statement.
Nonetheless, the decision highlights growing anxiety among companies doing business with the amalgam of Sears and Kmart stores created by hedge fund financier Edward S. Lampert, which announced that it would be closing up to 120 stores and taking up to $2.4 billion in quarterly charges last month after reporting weak holiday sales.
Representatives for CIT, which sought bankruptcy protection in 2009 amid the height of retailing's struggles during the downturn and emerged from restructuring later that same year, declined to discuss the Sears situation. "We don't comment on specific customers," said spokesman Curt Ritter. Its decision was initially reported by Bloomberg.
Sears has been seeking to reassure investors and business partners in recent days that it remains financially sound. All three major credit-rating firms have downgraded its debt, citing the deterioration of its earnings over the past 12 months, including a $421 million loss last quarter.
Mr. Brathwaite said Wednesday that the company had about $4.2 billion in liquidity at the end of December, including cash balances of about $900 million and $3.3 billion in prearranged credit facilities.
We give sears a few months at best before the liquidity crunch forces it to line up in front of that infamous building at 1 Bowling Green.